Mercury Systems MRCY reported lower-than-expected results for the second quarter, wherein both the top line and the bottom line missed the Zacks Consensus Estimate.
The aerospace and defense tech firm's non-GAAP earnings of 26 cents per share missed the Zacks Consensus Estimate of 33 cents and came in below the company’s guidance range of 31-36 cents. The bottom line declined 33.3% year over year, mainly due to increased costs and higher interest expenses.
Mercury Systems’ second-quarter non-GAAP revenues increased 4.2% to $229.6 million from $220.4 million reported in the year-ago quarter. The top line missed the consensus mark of $233.3 million but came within the guided range of $225-$240 million.
Mercury Systems Inc Price, Consensus and EPS Surprise
Mercury Systems Inc price-consensus-eps-surprise-chart | Mercury Systems Inc Quote
Q2 in Details
Mercury Systems’ acquired businesses (5.8% of the total revenues) — Avalex Technologies and Atlanta Micro — cumulatively contributed $13.3 million to second-quarter revenues. Organic revenues (94.2% of the total revenues) increased 0.9% year over year and contributed $216.3 million to second-quarter sales.
Mercury Systems’ total bookings were $270.3 million, resulting in a 1.18 book-to-bill ratio.
The company ended the quarter with a backlog of $1.12 billion, up $164 million on a year-over-year basis. Within the next 12 months, products worth $765.5 million from this order backlog are expected to be shipped.
Mercury Systems’ gross profit was $81 million, down 7.2% year over year. Moreover, its gross margin contracted by 430 basis points (bps) to 35.3%.
Total operating expenses increased 1% to $88.5 million. As a percentage of revenues, operating expenses declined 120 bps to 38.6% from 39.8% in the year-ago quarter.
Adjusted EBITDA plunged by 6.3% year over year to $35.7 million. The margin decreased by 180 bps to 15.5%, mainly due to a lower gross margin, partially offset by the reduction in operating expenses as a percentage of revenues.
Balance Sheet & Cash Flow
As of Dec 30, 2022, MRCY’s cash and cash equivalents were $76.9 million compared with $52 million as of Sep 30, 2022. The long-term debt as of Dec 30, 2022 was $511.5 million.
The company generated $35.4 million in cash for operational activities in the second quarter while it used $30.6 million cash for operational activities in the first half of fiscal 2023. Mercury’s free cash flow was $22.2 million in the reported quarter. It generated a negative cash flow of $51.2 million in the first six months of fiscal 2023.
For the third quarter of fiscal 2023, Mercury Systems projects revenues between $255 million and $260 million. Adjusted EBITDA is anticipated between $40 million and $47 million. Adjusted earnings are projected in the range of 32-42 cents per share.
For fiscal 2023, Mercury Systems expects revenues between $1.01 billion and 1.05 billion. It estimates adjusted EBITDA in the range of $202.5-$215 million.
Mercury lowered the forecast for fiscal 2023 adjusted earnings to the $1.90-$2.08 per share band from the earlier range of $1.93-$2.10 per share.
Zacks Rank & Key Picks
Currently, Mercury has a Zacks Rank #3 (Hold). Shares of MRCY have decreased 11.2% in the past year.
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